The relationship between South Korea and China has been on rocky ground because of THAAD. In addition, the United States and China are still in a trade war. Add COVID-19 and things look bleak for all countries involved. However, Korean startups can benefit from the US-China trade war and build back the China/South Korea relationship. Let me explain.
The companies that will struggle the most in South Korea will be the larger companies that take into account must consider politics when making any critical decision. For example, South Korean machine part manufacturers that help with the production of items in China and which are sold to the US will be vulnerable. South Korea is also one of the main suppliers of semiconductors in China. It is a $200 billion industry that could be hurt if the trade war continues and China looks for other suppliers. These big corporations will need to wait out the trade war or look elsewhere for potential business partners.
Korean Investors Panicking
South Korea doesn’t just export semiconductors. They are one of the major exporters of smartphones, cars, chemicals, beauty, and entertainment. Korean companies and startups are also on top of the latest trends in technology. The US-China trade war has hurt Korean stocks. COVID-19 has made it worse. Many fear all this will lead to a recession in Korea. Korean investors are looking to move their money into global stocks rather than Korean stocks.
The Korean won has taken a hit as well as it fell to a 19 month low against the dollar. Exports into China fell 16% according to the Korea Customs Service. This all means that Korea will be in for a rough ride and the Korean government knows this. They can’t let small businesses and startups fail. Therefore they will pump more money into the Korean startup ecosystem. The big corporations will look to work with Korean startups to act as middlemen for other potential business partners in Southeast Asia.
US-China Trade War Strained Further by Coronavirus
A global depression is likely coming due to COVID-19. The recovery phase is expected to last for many years. In addition, the US-China conflict does not seem to be ending anytime soon. No matter if Donald Trump is the president or Joe Biden, tensions with China will still be there. Coronavirus has added to the instability of supply chains. As unemployment in the United States rises due to COVID, people will focus on saving money rather than making purchases. The United States has already pumped an astonishing $3 trillion dollars into the economy in 3 months! Inflation is bound to happen. People will have less money than before and prices for goods will continue to rise due to inflation and lack of Chinese goods.
The most likely solution is the US-China trade war continues is that the United States will look towards countries like South Korea. The more the United States trades with countries like South Korea, UK, and Japan, the less impact they will feel not trading with China. A coalition of countries that do not agree with what China is doing in terms of cybersecurity, human rights, and trading will be needed once the global economic recovery starts. Expect more businesses that use to deal with China look for countries like South Korea. This is a great opportunity for startups in Korea that can move quickly and have a global mindset. Therefore the US-China trade war allows for startups in Korea to work with both China and the United States.
Huawei Opens 5G Open Lab in Seoul despite US-China Trade War
There are also questions about whether South Korea will join the US in banning Huawei. Huawei recently opened its 5G Open Lab in Seoul. The 5G Open Lab will offer Korean startups to develop and test their systems and services in the 5G environment. However, many companies that have partnerships with Huawei have been a sharp fall in their stock prices since the trade war. Korean startups can take advantage of this as Korean companies look to position themselves away from Huawei, Korean startups can look to work with Huawei and gain insight into their technology and infrastructure.
Southeast Asian Countries Need to Work with Korean Startups
During the THAAD incident in 2016, China banned the sales of group tour packages and appearances of K-drama and K-pop stars appearing on Chinese TV Shows. They really hurt the Korean economy as over 40% of South Korea’s exports go to the US and China. Since then South Korean companies slowly started shifting their factories away from China and into Southeast Asia. For example, Samsung invested over $17 million in 8 factories in Vietnam. They even built an R&D center in Vietnam. Therefore Vietnam has become the largest smartphone production base for Samsung.
As major companies look to work with Southeast Asian countries, more and more Southeast Asian countries are looking to get into the Korean market. This is huge for Korean startups. They will now be able to work quickly and efficiently with these Southeast Asian companies as other Korean companies are doing a wait and see approach before making any sudden moves. So while the future looks grim due to COVID-19, we need to find new opportunities during times of hardship. The businesses that can take full advantage are startups.
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